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Friday, June 29, 2007

May Personal Income And Outlays

Here's the report.

Real disposable personal income in chained 2000 dollars slipped 0.1 percent in April, after falling 0.6 percent in May. (See table 5). But the big drop off in April is the removal of the first quarter adjustment for special income, which is not carried forward to the second quarter, and last year second quarter real personal income was down too. The point I'm making is that this is not a sudden change.

Real personal consumption expenditures (PCE) in chained 2000 dollars rose 0.1 percent in May, after rising 0.2 percent in April. In March and May, real personal consumption expenditures for services fell. I don't see the strength in services that everyone thinks is there. (See table 7).

Needless to say, the savings rate is still negative.

Table 9 shows price indexes for PCE and percent change from the prior period compared to 2000. These are changes month to month, rather than annualized month to month changes. Durable goods have been falling or flat since October 06, so over the course of the period the durable index has fallen from 88.677 to 87.558. The price indexes for non-durables (which include food and gas) started increasing again in December. These are the month to month changes in the non-durables price index for the first five months of the year:
.2 > .4 > 1.1 > .7 > 1.3
The three month increase is 3.1%, which would equate to an annualized inflation rate of over 12% for nondurables, ie, food and gas if it continued. The economy cannot sustain this for very long, and it is a brutal experience for retirees on moderate fixed incomes and huge swathes of the wage-earning population. It's made worse by the fact that it is following on a period of relatively high inflation. In this environment, profits for companies selling to consumers are under severe pressure.

The reason durable price indexes are falling is because people don't have the money to buy durables, so prices are dropping to maintain sales. So the net effect for someone who has good income and can buy durables is relatively benign - such consumers are getting a compensating effect. For the lower income person, there is no offsetting effect and CPI is doubled, tripled or quadrupled. Crovelli's 20% estimation is about right. Prices for some nondurables have dropped, but if you are trying to save money or are in the bottom 30% of the income ranges, that's about what you see.

Now, if you consider the impact of high inflation on households that are overextended on debt and going retrograde on their homes, you'll get a picture of the consumer lending environment. Not good!!!


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